BP: Lower for Longer means going Back to Basics

Can deepwater oil and gas survive in a $50 per barrel (bbl) environment?

That’s a question operators such as BP Plc are challenged with, according to Ryan Malone, projects general manager for BP’s Gulf of Mexico (GoM) operations. The rise and fall of commodity prices, which reached the $50/bbl mark in recent months only to slip to about $45/bbl amid the world’s bounty of oil, have made some skittish on deepwater profitability as the lower-for-longer price environment prompts players to change the paradigm.

When oil prices began to fall about two years ago, "We took the stance that we were going to make all of our businesses viable and commercial at $50 per barrel,” Malone said Nov. 15 while giving the state of the industry keynote during Teledyne’s Technology Focus Day.

The task required a shift in strategy, but the company’s confidence was boosted by its profit-turning track record in places such as the GoM and offshore Angola and Egypt, where subsea and deepwater technologies are present, he added.

But like its peers combating the profit-gobbling force—also known as the oversupply-driven downturn—has been challenging. BP’s underlying replacement cost profit, or net income, dropped to $933 million during third-quarter 2016 compared with $1.8 billion a year earlier. However, the supermajor continued to cut costs, with capex expected to fall to about $16 billion in 2016; guidance shared earlier this year was $1 billion to $2 billion higher.